Oct. 4 (Bloomberg) -- With sales crashing in Europe and
slowing in China, carmakers are looking for signs of growth
beyond the U.S. market. In India, it’s not looking good.

The holiday season, just under way there, typically
accounts for about a quarter of new auto purchases. This year,
the market is uncharacteristically moribund as the economy is
projected to grow at its slowest pace in a decade. That’s
especially tough for Hyundai Motor Co. and Tata Motors Ltd., the
second- and third-biggest carmakers by volume in India.

“Everyone is counting on India to deliver future growth,”
said Deepesh Rathore, the New Delhi-based India managing
director of IHS Automotive, an industry-research company. “The
festive season is a trigger for sales in the second half.”

The run-up to the Hindu celebration of Diwali in mid-November typically sends consumption surging across India, where
the proportion of car ownership is less than a third of that in
China. This year, the economic slowdown, high borrowing costs
and a fuel-price increase may make the holiday season the worst
for auto sales since 2008, according to 7 out of 11 analysts
surveyed by Bloomberg News.

The Society of Indian Automobile Manufacturers, or SIAM, is
considering cutting its forecast for 2012 sales growth for a
second time this year, after already paring it back from about
12 percent to 9 percent in July. That’s weak growth for a market
that doubled in size from 2008 to 2011, according to Bloomberg
Industries data.

Low Ownership

With only 1.3 percent of India’s 1.2 billion people owning
a car -- against China’s 4.4 percent and a global average of 14
percent -- the South Asian nation’s untapped potential is a lure
for global carmakers. Spurred by 30 percent sales growth in the
year ended March 2011, Ford Motor Co. and Maruti Suzuki India
Ltd. are among those adding capacity in Asia’s third-biggest
auto market.

Ford, which expects India to be among its three biggest
markets by 2020, is spending 40 billion rupees ($765 million) on
a factory able to produce an additional 240,000 vehicles and
270,000 engines a year by 2014. Maruti, the Indian unit of
Japan’s Suzuki Motor Corp., will open a sixth plant near New
Delhi next year to boost annual capacity 17 percent to 1.75
million units.

Now, carmakers are dropping prices and doling out
sweeteners as they face the prospect of the worst festival
season sales since the collapse of Lehman Brothers Holdings Inc.
roiled markets worldwide.

Car Discounts

Hyundai, which is offering a discount of as much as 44,000
rupees on its 365,000-rupee i10 hatchback, said on Oct. 1 that
its Indian sales last month declined 14 percent to 30,851
vehicles. Mumbai-based Tata Motors, maker of the world’s
cheapest car, the Nano, saw an 18 percent drop in passenger-vehicle sales for September, while Toyota City, Japan-based
Toyota Motor Corp.’s India sales fell 5.4 percent.

Volkswagen AG cut prices on some variants of its lowest-priced models, the Polo hatchback and the Vento sedan, on Sept.
4. The Wolfsburg, Germany-based carmaker is offering low
interest rates, free insurance, and added features, Arvind
Saxena, managing director for passenger cars in India, said in
e-mailed comments.

Ford, of Dearborn, Michigan, is offering discounts on its
Figo hatchback, including as much as 28,000 rupees on the diesel
model.

“We remain confident of the long-term potential of the
Indian market,” Ford Managing Director Michael Boneham said in
e-mailed comments.

Cutting Forecast

SIAM said Sept. 10 it may cut its full-year domestic car
sales forecast as deliveries declined for the first time in the
10 months after Maruti Suzuki shut one of its factories because
of a deadly riot. August local deliveries fell 19 percent to
118,142 vehicles. The group had already cut its forecast for
car-sales growth to as low as 9 percent in July, from an April
estimate of 10 percent to 12 percent growth.

Car demand in India has been hurt by high gasoline prices
and borrowing costs in a country where almost 80 percent of auto
purchases are funded through loans. The nation’s central bank
raised interest rates a record 13 times from March 2010 to
October last year to rein in inflation. Headline inflation
accelerated to 7.55 percent in August, the fastest in the BRIC
group of largest emerging nations that also includes Brazil,
Russia and China.

Diesel Prices

A 14 percent increase in diesel prices announced by the
government Sept. 13 as part of measures to pare its subsidy bill
and trim the budget deficit has further damped automobile
purchases. Automakers have added diesel engine capacity and
introduced new models as a price gap between gasoline and
subsidized diesel spurred demand for the cheaper fuel.

“When there is a such a sharp increase in fuel prices,
customers hold off purchases,” said IHS Automotive’s Rathore.
“Unfortunately, this increase in diesel prices has come at the
wrong time, just before the festive season.”

The Asian Development Bank said yesterday it cut India’s
full-year economic growth forecast to 5.6 percent. That would be
the slowest expansion in 10 years, according to data compiled by
Bloomberg.

The slowdown in India comes as the European debt crisis
dragged the region’s auto market to its lowest level in 17
years. Also, Chinese passenger-vehicle sales in August trailed
analysts’ estimates for a second month after consumers held off
purchases in anticipation of more discounts.

New Alto

Carmakers and 3 of the 11 analysts polled by Bloomberg
still said they expect new models and the discounts to help
revive demand.

General Motors Co. will introduce its Shanghai-designed
Sail hatchback this month as it looks to newer models to bring
back customers. Maruti, India’s biggest carmaker by volume, will
introduce a new version of its best-selling Alto hatchback
during the festive season.

“Many automakers -- including us -- are introducing new
models around the festive season,” said Lowell Paddock, GM’s
president for India. “We’re cautiously optimistic that all of
the attention this will create will increase showroom traffic.”

Ford, which is offering incentives including insurance
payments and free accessories, expects demand to revive before
the end of the festival season.

“We are upbeat about the festive period and have lined up
various offerings,” said Boneham.

The growth so far this year may signal a postponement of
purchases to the festive season, according to Abhishek
Gaoshinde, an analyst at Sunidhi Consultancy Services.

“There is a lot of pent-up demand in the market,” said
Gaoshinde, in a Sept. 26 telephone interview from Mumbai. “The
festive season may see this demand being met, especially with
the discounts available.”

Others aren’t so optimistic.

The “general inflationary trend, high fuel prices and
interest rates” are damping demand, Hyundai’s India unit, which
accounts for about 10 percent of the Seoul-based company’s
global shipments, said in e-mailed comments. “Unless any major
triggers get activated, market sentiment is not expected to
improve very much.”